Legislature, Davis Take Emergency Measures

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After several days of deafening silence, California Gov. Gray Davis last week declared a state of emergency to allow California to buy electricity to pump into the under-supplied grid. The next evening, during the second day of rolling blackouts in California, the legislature backed Davis move and sent him a bill allowing the appropriation of $400 million for the state Department of Water Resources.

DWR will buy and sell electricity directly or indirectly to consumers until Feb. 1 on behalf of Pacific Gas and Electric and Southern California Edison, under legislation by state Sen. John Burton. The California Independent System Operator will determine how much power DWR needs to buy for the ISO s real-time market. Not addressed is how much the state will pay for the electricity and no mention was made of investor-owned utility payback to the taxpayers.

The legislature and Davis administration have also been working to hammer out a longer-term market fix via a bill that would have the state enter into long-term energy contracts negotiated by DWR. Under legislation by Assemblyman Fred Keeley, who has taken a lead role in the state s mega energy melodrama, DWR would be authorized to buy electricity at a maximum price of $.055/KWh. The length of the contracts would be determined by the department. Although the legislation s focus is on investor-owned utilities, municipal power agencies also could bid for power sales and purchases. The bill would allow DWR to beef up its energy procurement division with staff borrowed from the California Power Exchange. It would also allow the department to borrow about $300-$400 million from the state s general fund to pay for the initial round of energy sales.

The most difficult issue, of course, as the legislation steams ahead is the price. Jan Smutny-Jones, head of the Independent Energy Producers group, said the bids his members were mulling were in the $0.075/KWh range. “But, we wont know the answer until a bid is put out there,” he said. The spot market price went as high as $.60/KWh last week.

The bill received wide, but largely guarded, support from consumer and ratepayer advocates, business trade groups, and IEP. The Foundation for Taxpayer and Consumer Rights vigorously opposed the measure, complaining of inadequate public input and the haste in enacting the bill. “You have got to stop the car to change the flat tire,” warned Doug Heller of the consumer group.
governing board.

Other crisis management actions coming out of California are two newly signed energy bills that prohibit the sale of PG&E s and Edison s power plants for five years and create a new Cal-ISO governing board.

The law that freezes the sale of the IOU assets also extends the California Public Utilities Commission s reach over the generation plants. The facilities will be regulated by the CPUC until the plants are sold off, and they must undergo a market valuation that complies with commission criteria. This provision is an attempt to keep a federal bankruptcy court from usurping CPUC authority over the assets should PG&E and Edison file for protection. It also aims to resolve the ongoing dispute over the disposition of power plants between the two investor-owned utilities and CPUC.
governing board.

The second bill creates a five member, governor-appointed Cal-ISO board that replaces the 26-member stakeholder board. The law also requires the Cal-ISO to publish a list of out-of-service power plants and prohibits the Cal-ISO from entering any multi-agency deal. A day after Davis signed the ISO revamp legislation he appointed four members, including Mike Florio, a ratepayer advocate for TURN and former ISO board member; Michael Kahn, head of the Electricity Oversight Board; Maria Contreras Sweet; California Secretary of Business, Transportation and Housing; and Carl Guardino, representing Silicon Valley interests.

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